Join Bronson Hill and co-host Nate Hambrick on the Mailbox Money Show with Feras Moussa of Disrupt Equity. Feras shares how his team has scaled to over 7,000 multifamily units and $1B+ in real estate, then expanded into private equity through their M&A Launchpad — acquiring cash-flowing businesses that deliver significantly higher yields than traditional real estate.
The conversation explores the transition from multifamily to buying businesses, the massive cash flow potential (often 3-5x multiples vs. real estate cap rates), working capital considerations, seller psychology, risk management, and creative deal structuring.
Troy Eckard is the founder of Eckard Enterprises with over 40 years in the oil and gas industry. His firm has deployed more than $1.4 billion in capital across working interests, mineral rights, and infrastructure, including ownership of the second-largest natural gas pipeline in the Gulf of Mexico.
Get my new book: https://bronsonequity.com/fireyourself
Full Transcript:
Bronson Hill: All right, welcome to the Mailbox Money Show. I’m your host, Bronson Hill. Super excited to be here today.
We’ve got a good friend, a guest today. We’ve got Feras Moussa with us, who’s with Disrupt Equity. And he’s had over 7,000 units and over 1 billion in real estate with a B.
They’ve also launched a private equity group called M&A Launchpad. And with me as well, I also have my amazing co-host, I’ve got Nate Hambrick in the house as well. And he looks like he’s ready for Hawaii, he’s wearing a Hawaiian shirt there.
But Nate, talk to me a little bit about your experience with private equity. I know you’ve done a lot of investing in different real estate, but talk about private equity. Have you gotten into private equity?
Nate Hambrick: You know, honestly, not a ton. That’s kind of something that I need to get into. But the reason I’m excited for this particular podcast interview is because I have invested with Disrupt Equity a number of times.
In fact, there are some of my very first deals and praise God, all of them were super profitable and it’s kept me in the game, kept me positive and kept me investing. So thanks to Feras.
Bronson Hill: That could have gone really the other way. We did not remember what it was going to happen, but like, it worked out.
Nate Hambrick: I watched five times in a row and I was out.
Bronson Hill: Yeah, that’s awesome.
Feras Moussa: But not with Disrupt Equity, right?
Bronson Hill: Yeah, otherwise you’d just be quiet. I don’t know who this guy is. No, that’s definitely a good thing that happened.
So we don’t really endorse anybody specifically, but it’s always good to hear when you have experience. I will say one thing we do at our Wealth Forum Group, which is all high net worth, a lot of 10 to 40 million net worth, some over, some are accredited, they’re lower than 10 million. But we share notes.
We actually get on the board. We get a white board up and say, who have you invested with that you love and you would invest with again? And who have you invested in that you would not invest with again?
And again, that’s just a conversation that unless it’s a one-on-one, people really don’t share. So I love being able to have those conversations that get super valuable. So with that said, we have Feras Moussa in the house.
He is a guy I respect a lot. He’s very successful in the corporate world previously. And him and his partner, Ben Suttles, have just been doing.
I mean, it’s like every time I look at you, Feras, you’re doing something new. You’re buying some new business or whatever. And I want to talk for a minute about so you’ve been you guys have had a lot of history done very well in multifamily.
You’ve done you just exceptional results and you just a lot of great history there. And you shifted into private equity. This is something we’ve looked into as well.
We had some we’re going to buy and I’m not working out, whatever. But you have bought a couple of businesses in the in the private space. Talk to us about what’s the reason that you’ve decided to explore that and make that move.
Feras Moussa: Yeah, good question. So first of all, thanks for having me, guys. But, you know, really get into it.
Right. Like they said, we’ve done multifamily historical. That’s where I still spend 80 percent of my time in.
Right. On the district equity side. And as we’ve grown, right, as the markets have cap rates have started to uncompress, right, cash flows have gotten softer.
And, you know, kind of really what happened in twenty two, twenty three, we basically saw an opportunity where, hey, right now, there’s not enough yield in multifamily. Things are changing today where we’re seeing valuations have come down 30 percent across the market, which is great for someone that is buying, not as great for someone that isn’t a deal, right?
But at the time, twenty one, twenty two, twenty three, we basically recognize that, hey, a lot of investors have had a lot of success.
We’ve made some exits. We’re not seeing the return profile that we did see, a few years prior. And instead, right, we know that we know how to operate.
Operating is hard. We started our companies scratch.
We have our management company in-house, we do first and third party management. Know how to keep handle on these things.
And basically had investors that wanted higher cash flow. And so how do we find more cash flow? Well, we could go into a different asset class, maybe store or some other thing, but really the idea was, hey, we’re strong at operating.
And how do we find some of the best cash flowing opportunities? And that’s really where finding businesses kind of came about.
We have a partner, Casey, that kind of heads up that part of the business. And so it’s not that we fully pivoted there.
It’s actually just an add-on that we’ve expanded into offerings to give our investors a way to diversify right into higher cash flowing businesses. And, you know, it’s been it’s been exciting. I mean, I literally my leadership doesn’t like to hear it, but I keep telling them that in five to ten years, that part of the company will be bigger than the disrupt equity side of the company will continue to grow both.
But I mean, there’s just some huge upside on the kind of M&A side of things.
Bronson Hill: So I know we’ll spend some time talking about multifamily too. I want to really double click on this because I think a lot of real estate investors, the last few years as rates have risen, a lot of cash flow has evaporated. And even when you’re looking at, you know, it’s great to make a lot of money someday.
But I talk about in my book, Fire Yourself, I say that, you know, cash flow is what really lets people become free. And so I had a conversation with, you know, a lot of large indicators that are doing this now, but guys in multifamily guys said, I’m really focused on buying businesses. Here’s what we’re doing.
Here’s how it works. You know, the cash flow, if you convert this to a cap rate, right, we’re used to cap rates in real estate of typically, you know, five or six or something like that. That means that if you own the deal in cash, then that’s the amount in cash you would get per year from distribution.
So if it was, you know, a million dollars, you get it, you know, was that 50K? My math is right. And I think I’m doing it right.
50K a year in cash flow. So if you know, it’s just it would be like a 35 cap rate for some of these small businesses, you know, 30 cap rates, it’s five, six, seven times higher. What are some of the things that people don’t know about buying businesses?
It looks so easy, but yeah, it’s not as easy as it looks, right?
Feras Moussa: Yeah, well, I want to go back to the point you made first, and then I’ll come answer your question, right? The point you were making for the listeners that don’t know, real estate is valued based on cap rate. And what does that actually mean, right?
Why does cap rate exist? Because it’s a way to compare unlike properties, you know, that how do you compare the Walgreens to the CVS to the house, to the apartment, to the office building, very different asset classes, cap rate is that thing. And like Ron said, it’s what you get, what you would get if you bought it all cash, when you take all debt out of the equation, and don’t do anything better or worse than the current operator.
That’s the important thing, right? You just manage it as terribly or as well as the current owner. That’s what your cap rate is.
That’s your yield that you would get. Now, in businesses, they’re not traded on a cap rate, right? They’re traded on a multiple, right?
It’s a multiple of what’s called Ibida, right? Or any before interest tax, depreciation, amortization, but keep it simple, right? There’s a lot of nuances, but let’s just say that’s your profit.
So you’re buying businesses for two, three, four, five, six X’s of what they earn. Now, like Bronson said, right, you take the one, you put the six in the denominator, what’s that end up being, right? That’s how you convert cap rate to essentially your multiple.
And so we’re buying businesses and we’ve bought in one out of one X. I could talk about that too, but we’re typically looking at businesses that are that three to five X. So if I’m buying a three X business, it generates 33% of the purchase price in profits each year, right?
That’s a very, very profitable business relative to getting a commercial real estate where that 33 is usually 5%. So that’s the difference between kind of buying the businesses versus apartments. But the thing I tell people is operating businesses is hard, right?
You have to understand what you’re getting into. In multifamily, you’ve had a lot of people that have been successful, right? And maybe some unsuccessful, but everybody can figure out how to raise money, right?
Everybody’s, you know, you grow up, everybody knows what money is. Everybody knows who the network has money, right? Everyone can build some marketing to go raise money, but, you know, buying as for those of you that have kind of seen what happened the past couple of years, that’s actually the easy part of the business, right?
Most people buy and then they hand it off to third party management and they blame the management company. It either succeeded or it failed. And if it’s exceeded, they kind of say, well, look what I did, right?
But if it failed, they say, well, the management company did a poor job, right? You don’t have that in the business side. And so businesses, you know, and I’ve actually thought about this, I’m like, well, if this ecosystem is growing, is there a way to build a management company, you know, kind of like property, but there’s a whole different animal, but you have to know how to operate, And so if you don’t know, you know, if you don’t have the financial chops for running a business, then, you know, it’s going to be hard, right? You have to understand what AR means, what AP means, basic things.
How do I tighten AR? How do I loosen AR? So there’s some mechanical pieces you need to understand, but at the end of the day, an apartment is a business, right?
The fundamentals are still the same. So I’ll pause there. I know I said a lot, Bronson.
Nate Hambrick: Well, I was going to ask you on that, you know, how much obviously the cash flow is a lot higher. The profit can be a lot higher assuming you know what you’re doing, but there’s also a lot more work involved. And I’ll exaggerate a little bit, but for a while there, I feel like people multi-family, it was buy the property, wait for the government to print loads of money, and then sell.
And that was kind of their entire strategy, right?
Feras Moussa: We forgot step two, which is handed to a third-party management company.
Nate Hambrick: So there you go, and then blame them for better or for worse. So the blessing is there’s a lot more profit, but it also comes at the cost of you have to be a lot more active in it. So if we were to use equity multiples or 3x or 5x, like how much realistically, how much more work is buying a business compared to 120 unit multifamily property?
Feras Moussa: You know, it actually depends, right? It depends on your model. So for us, we’re typically finding an operating partner that goes in and runs the business with us, right?
But, you know, and I’ll give you an example about two different acquisitions. One of them, I would argue, is a lot less work than any apartment I’ve owned, right? We have the right guy, he’s there, he’s grown and he’s doubled the EBITDA almost.
We’re literally coming up on a year next week, I think, when you’re into the business, really grown, very hands off. It’s going the right direction. It’s not taking a lot of energy.
The other business is a lot more involved, time intensive. It is starting to take more energy than an apartment would, right? And so it really depends on how you want to go about it.
A lot of people, you know, it’s like franchising, right? People get into franchising, think it’s going to be easy money, and you realize there’s no such thing as easy money in business period. It doesn’t matter, you’re doing apartments, you’re doing business, you do.
It’s none of it is easy, right? It’s about having a clear strategy, a clear plan, accountability, getting the right people involved, right? With a franchise, a lot of people end up buying themselves a job.
They’re the ones working because they’re buying a franchise that’s too small. They’re having to run the day-to-day and it’s not really solving their, I’m trying to get more of my time back problem, right? For us, we’re typically trying to find businesses that are bigger, that dedicate their own full-time person that is running it, and the thing that we’ve learned is really getting that person identified before we buy, and getting them, you know, essentially alongside us, through the due diligence, through the whole process, and giving them an upside.
So that’s the big difference there.
Bronson Hill: Yeah, just kind of touched on that too. I mean, there’s a lot of people I know, I mean, there’s right now, it’s so popular, right? The Cody Sanchez stuff, the Walker Diable, especially Cody, makes it sound so easy.
Oh, you just do this, and there’s all these boomers that are just basically want to give their business away, and whatever. There’s a process to go through, and it’s not, let’s just talk about acquiring a business for a minute. You know, we were seven months in, and over six figures in, and we ended up not closing.
We had some losses on that for ourselves, to the partners, not limited partners, but why is it difficult to buy a business?
Feras Moussa: Yeah, buying a business is a lot more work than buying an apartment complex, right? And it’s not the transaction, it’s the emotions along the way, right? For a lot of our sellers, and I’ll give you an example, one of the businesses we bought, it’s a whatever, 60 year old company, the guy’s dad started the company, he grew up in the business, right?
This is all the seller knew his entire life, right? That is a lot harder to part with than something like an apartment complex. That’s very transactional, very mature.
You have brokers involved, and it’s on to the next one, right? And so there’s a lot of emotion that go into it. And the perfect example is we have a deal right now that we were supposed to have closed last December.
We literally started raising all the money, got through it, and then basically the deal fell apart, right? And again, partially due to emotions, partially, you know, many reasons. Well, we have to kind of gave back everyone their money, and we know all of the DD calls that was our loss, right?
Kept that relationship going, kept that relationship going, and now the seller’s at the point of, hey, he knows he’s ready to sell, right? Sometimes it’s working through the whatever challenge the seller has, and it’s not usually just price. Price structure, your responsibilities, second bite of the apple, there’s a lot of things.
So we call it going belly to belly with the seller. You spend a lot of time going going belly to belly with the seller versus, you know, I’ve bought over a billion of apartments, and I can maybe name a handful of sellers I’ve ever met in person, right, versus the business side. We know each of these sellers very, very, very, very well.
I could tell you about their spouse, their kids, their person, where they retire, I mean, all of these details that you don’t typically have an apartment site.
Bronson Hill: Yeah, it’s interesting. And then, you know, the path to close, and let’s actually talk about size of business, because I think people listening to this, you know, if you’re listening to this, and you’ve thought, hey, I’m going to do a franchise, I’m going to buy a business, I’m going to, and what you shared, Ferris is completely real. It’s like, I don’t want to just simply have another job, and a lot of people, they do, they go from working, there’s a saying, right?
A lot of people trade working 40 hours a week for someone else to be working 80 hours a week for themselves. And if you’re an entrepreneur, a lot of you have experienced that, you know, sometimes very few businesses kind of run themselves, you know, it’s like, yeah, you got to jump in at least for a season, be fully hands-on. So what is the size?
I guess if you were, like, somebody was listening and they’re like, maybe they’re retired or retirement, you know, kind of aging, I could maybe buy one. And how big of a business, like, how much profit does someone need? Is it $300K?
Is it $1 million? Like, what makes sense to where you don’t have to just simply, you don’t get another job by jumping in there?
Feras Moussa: You know, I would make sure you’re above the $1 million, right? I mean, you can find some stuff that’s, you know, that makes sense. But $1 million is kind of that sweet spot of, okay, once you get above $1 million, you’re spending your time working on the business, not in the business, right?
And for those that haven’t read, I mean, I highly recommend reading the email that’s revisited, right? It really talks about that difference of what does it mean to work in the business versus on the business. And so, you know, my coincident, I have a friend literally last night sent me two businesses that he’s looking at, right?
And my, I haven’t sent him the email yet. He doesn’t know this yet, but my response to him is going to be, hey, like, both of these are just two small businesses, right? One of them has four employees, the other one has five.
These are hard businesses. And again, the business type really matters too, right? If you’re buying a welding company, that’s got, you know, a lot of tribal knowledge and very, very high, what’s the word, high risk, you know, employees, meaning that guy is the guy that’s been doing for 25 years.
If he leaves, like, you don’t have much, you have a Chrome company.
Bronson Hill: That’s kind of that welding type of business, right?
Feras Moussa: Yeah, we have a Chrome company and, you know, it’s got, I mean, literally, we were one of our GMs who’d been there for 30 years, you know, we kind of we transitioned them out last week, right? And so, you know, you’re kind of nervous about it, but it’s also about, hey, we’re here to grow. How does that look like?
Right. And the difference is that company had, you know, what I think it had 120 employees. So, you know, it’s not tied to a company that has five or one guy is the guy that’s doing a lot of the production.
And so you have to assess that. And that’s where, back to Nate’s question, tell people it’s about, you know, understand what risk-adjusted returns are, right? Two deals can give the same return profile, but you need to understand the risk associated with them.
And buying a business has much more risk, but that’s also why we pay a much higher prep to investors.
Bronson Hill: Yeah, I love it. Anaya, why don’t you jump in as well when you’re ready. I have another question on, as a passive investor, you know, we’re seeing a lot of, a lot of people, I think the mood, at least at the time recording this early April, there’s a lot of wait and see.
There’s a lot of like, I don’t know. And then, you know, people, anybody that did, in our experience, a lot of, especially retail investors that did multifamily, if they’ve had some issues, which is about anybody who’s been in multifamily, had some kind of challenges with multifamily, whether it’s debt or operations, other things because of the higher rates. There has been a push to move toward lower risk and higher cash flow.
And I would say, you know, buying a business, hopefully the cash flow is very high, but it’s not always, you know, I was looking at a deal the other day that was a rollup of CPA firms, right? It was a CPA firm rollup. And, you know, obviously, I’m trying to understand it, whatever.
And I just think like, there’s a big operations risk of actually being able to pull that off. Because, you know, if you have one or two or three of these CPA firms of a certain size, it might sell for five times earnings. You know, but if you have a bunch of them, maybe you have 10 or 15, it might have a higher, you know, more revenue.
It may sell for 10 times earnings, right? So there’s this kind of rollup game that is played. So can you talk about the rollup game?
And can you also talk about kind of the risks that, you know, a retail investor, like, how do you, how do you know going in?
Feras Moussa: Yeah, so really quick. So you said something that I want to disagree with, right? Which you said, people are looking for lower risk, but higher cash flow.
Those are opposites, right? You actually need to increase cash flow for higher risk opportunities.
Bronson Hill: Not the way around.
Feras Moussa: I would say most of the time, right? Otherwise, something’s off, right? You know, there’s something in the structure then that’s allowing it.
But ultimately, in order for me to raise money for a more risky opportunity, you have to make it more attractive, right? It’s a difference. That’s why bonds are as low of yield as they are.
Versus if I buy a double A, if I buy a government-backed treasury, that’s lower risk, lower return than if I buy a, you know, bond off of some public, even if it’s a public company, even if it’s a double A bond, right? Like the risk is there. And so I would say that cash flows increase as you take on more risk.
Now, it’s also about how do you hedge risk. That’s the thing I think that kind of a lot of time gets ignored on. What was your question, Bronson?
Sorry.
Bronson Hill: I wanted to talk. I think you’re talking about how you evaluate as a passive investor, and then also talk a bit about the roll-up strategy. No, I love that you push back on that, though, because generally, yeah, the returns, typically there’s, if it’s higher returns, I mean, if you’re protecting a high return, typically there’s more risk.
And so what kind of returns do you typically see in these deals? Or what kind of like for investors, like, is it 15% to 25%? Is it very, I mean, obviously there’s variance in every deal, but just is there a ballpark of what’s arranged for these?
Feras Moussa: Yeah, it really varies. What we’ve done on this is we’ve kind of structured them very different, right? We really looked at it and say, how do we give investors what they really want?
You know, a lot of investors want these high cash flows. So we’re giving them 15 prefs, right? So we give them 50% annualized before we participate.
Now, again, going back to things, our trade-offs, we’re giving them higher cash flow, but we’re taking more of the upside on the deal. But ultimately, I mean, the deals that we’re looking at, Bronson, I mean, our investors, what we’re modeled, the IRRs are in that 22% to 32% range, but it’s significantly higher than what you see in multifamily. But again, I tell investors, there is risk.
A business can be worth zero dollars. An apartment is never worth zero, right? There’s always some intrinsic value, even if it’s vacant, even if it has some value to it.
First, as a business, could just not pay the rent and then the owner takes over, now there’s like no business left, right? And so it is a higher-risk opportunity. But the beautiful thing about businesses is kind of the question you were asking, Bronson, which is, you can play, you know, we talked a lot in multifamily about value add, right?
Forced appreciation. We go in, we force the appreciation by making the units better, by increasing the NOI, and therefore the value of the apartments gone up. Well, you can only do so much of that, right?
It’s really hard to triple the value of an apartment complex, right? You can triple your returns by leveraging debt, but the actual, you know, the apartment doesn’t really triple in value reasonably, you know, in some sort of short horizon. But a business is actually the opposite.
You could, not the opposite, but it does have ways to really increase value. If I double my EBIT, I’ve doubled the value of the business, and there are ways to double my EBITA, right? A lot of these businesses, you’re looking to grow 20, 25% a year.
Apartments, you’re looking to grow, you know, 2% a year. And so, if you can grow the EBITA, you get more value. But now, in addition to that, right, where it becomes really lucrative, is if you can play multiple arbitrage.
And so, back to what I said earlier, if I buy a business at a 3x, then I sell it at a 5x, right? Ignoring how much I’ve grown the EBITA over time, right? That aside, I’ve also just increased the value intrinsically 40%, right?
That extra at 2x, right? And so, the question is, why? What leads to it being worth more?
Well, a couple of factors, right? And I’ll give a real example. Right now, we have a company we bought in the water control space, right?
They build water controls. It’s got recurring revenue, but a smaller business. Because there’s a bigger company that we’re going to close on over the summer, which has construction.
It’s got the construction piece. That business is a lower EBITA. Sorry, not a lower EBITA, I apologize, lower multiple.
But if I marry the two and start to have real synergies, the combined company sells at actually a higher multiple, right? And so, I can basically take this bigger company and now increase the value quite a bit, because I’m targeting better types of income. And so, what’s better types of income?
Recurring revenue. People love recurring revenue. Sticky revenue.
That’s another one, right? And that’s why an insurance company sells at a better multiple than a construction company. Construction is a lot of work, a lot of effort, and, you know, great, you get some profit.
Insurance, you know, typically that keeps coming through the door. It’s just a corporate office. It’s a lot more efficient.
And so, again, the more you can do to either make a company bigger, right, because bigger means bigger dollar amounts, means more, you know, bigger check writers involved who will pay a premium, because you did that consolidation, which is one strategy, right? Or get better kinds of income that you could then justify.
Bronson Hill: I love it.
Nate Hambrick: I love it. And that’s the upside of everything. I wanted to ask you some questions about protecting the downside, because a lot of people that are going to buy their very first business, it’s scary, right?
They don’t want to lose their shirt in the process. And I have read Cody Sanchez’s book on this, Main Street Millionaire, I read Walker Diebel’s book as well. Get tactical for a second.
Like, for the person on this, you know, listening to this call, and they’ve never bought a business before, how do you go about the SBA loans? How do you protect your downside? So if worst case scenario, you do, you know, the business doesn’t go as well as you plan, you don’t lose everything you’ve built in the process.
Feras Moussa: Yeah. So one of these days, I want to write the book called The Truth About Buying Businesses. You know, to your point.
So first of all, kind of one thing, you mentioned SBA, right? Just people should know SBA is not the only way to buy a business, right? And what I love about this space is that you can get really creative on the structure with the seller.
It’s not like commercial real estate where it’s kind of almost one size fits all, right? We do deals where the seller’s rolling equity, the seller’s financing a portion, the seller has an earn out, right? We bring equity, maybe there’s some debt.
You know, you can have debt and seller debt, right? You can have multiple ways to play it. So the SBA that has its benefits, right?
But again, it has its own problems too around the process, the mechanics, not every kind of deals an SBA deal, right? And then it’s only up to $5 million. And I’ll give you an example.
We have a deal right now we’re working on, which is really about a $50 million purchase, right? And that’s where you get to a different tranche where you have groups that are going to give you the senior and a big chunk of the equity, right? But they’re also taking on a lot more of the upside of these businesses.
So, you know, I just tell people SBA is always the starting point because people can, you know, understand what it means. They can get their head around it. But there are other things out there for people to be aware of.
Bronson Hill: And so SBA is like you’re kind of personally guaranteeing everything.
Feras Moussa: You’re personally guaranteeing with the SBA, etc. And so, you know, it’s now to your point about the downside outside of the personal guarantees, the loans, right? You really need to understand the life cycle, maybe it’s the word I’ll say, of a deal.
And what I mean by that, right? Is imagine that, you know, I sell widgets, right? Actually, no, I have a hot dog stand, right?
People come to me. I sell them hot dogs. They give me cash.
I give them hot dogs, right? Great. You know, let’s say I make a million dollars a year.
Now, in a separate business, let’s say I sell widgets, right? People place an order in the mail for a widget. I send them a widget.
And 30 days later, they send me the check, right? That business can make a million dollars. Which of those businesses would you rather have?
Bronson Hill: Up front.
Feras Moussa: The first one, right? And so you have to understand that means in the second business, both of those are making a million dollars, right? But it’s great because I’m not giving people a hot dog until they pay me.
First, the other one, I have float. And so that is cash that has to stay in the business, right? And that’s one part of a really important thing that most people miss and don’t understand called working capital, right?
Working capital needs to stay in the business. And you have to educate sellers. A lot of time the seller thinks, okay, I’m going to take all the cash in the bank.
I’m selling you the business for whatever number, $10 million, and I’m taking all the cash in the bank and it’s all yours. Well, no, you need to kind of explain to me that working capital, meaning the cash that is the grease of the business, right? It keeps it lubricated, has to stay in the business.
And so there’s other parts that go into what working capital is. But you have to understand that, right? People make that mistake often where they’ll think both businesses that I gave you the example are the same and they’re going to go buy that second one.
And then day one, they realize, oh, shoot, I need 30 days of cash, you know, for what my clients owe me just to park it, right? Otherwise, I’m out of business. And so you have to understand that part of it.
And in a business, you hear this phrase a lot, the cash is cake. So having good, healthy reserves. And again, you know, with these businesses, you really, really, really, really need to think about your financial structures, right?
And I don’t mean how are you buying the business? That’s one piece of it. But I mean thinking about things like the business we bought, right?
Bronson mentioned kind of the chrome plating company we bought. Dirty, grimy, you know, exactly what it sounds like, what you think it is, right? It’s a tough business.
Now, two problems. One problem we had in the business is not really understanding just how capital intensive that business is, right? We have a lot of machinery, very capital intensive, right?
You have to really factor in more of that than you think, especially around things that could break, right? And just kind of the, you know, there’s some time associated with things being off offline and, you know, getting parts. But then the other part of that is that business, the average customer was paying us something like 90 days, right?
So there’s a lot of cash that has to stay in the business, right? That business is 22, $24 million revenue a year. So there’s only, you know, if you just take that amount, you know, the average take 90 days is roughly a fourth of the year.
So there is in the business five, six million dollars that has to stay in the business of just working capital. Now, if we tighten that from 90 days down to 60 days, Meaning we get really good at getting our customers to pay. We start to a different, you know, different, get better customers could be part of it, start to have different contracts in place, whatever it is, but you get it down to 60 days.
Well, the business is still doing the same amount of revenue. I’m not doing anything more, but now I’ve engineered a million over a million dollars to come out of the business because now it doesn’t have to sit in the business, right? And so it’s those kinds of things you really need to understand around how money moves, right?
People always fixate on, okay, I’m selling widgets, so I need hot dogs and I have customers, but that’s that’s one step of it. You need to understand the other parts of it really make something compelling happen.
Nate Hambrick: I’ve actually learned a lot about that because I have a, I’m friends with a lot of entrepreneurs and one of my friends thinks of most of the business deals he does is how much profit can I make? Then my other friend thinks of speed of capital. So if he puts money in today, he wants to be paid back in like five days or less so he can flip it.
And even though we’ll call him entrepreneur A is getting a higher margin of profit. Because the second entrepreneur is doing speed of capital and they’re literally doubling down and tripling down every five or six days. It’s amazing how much more profitable they are and it also keeps the risk down. And just the other day he had a call and he’s like, guys, we’re not that profitable anymore.
We’re only running out of 38% profit margin for the month, which is hilarious obviously, right to most businesses. They’d be like, I want that for the year, right? But it’s kind of been changing my mindset that just because something looks good on paper, you know, it’s the same thing with it’s the difference between 10% profit with stocks versus 10% cash flow.
On paper they might look similar, but the reality is completely different. And that’s kind of what you’re talking about. So I love that.
What are some of the other pitfalls that you usually look out for, like red flags, key person red flags, things that you look for to avoid when you’re buying a business?
Feras Moussa: Yeah, I mean, I would say part of it is size of the business, understanding the motivation of the seller, how long have they been around? How do you keep the seller on, right? You know, we like to start for stuff that kind of forces the seller to really work on making sure we have a smooth transition, right?
They’re not on for a month, right? At least you a lot of times when we see less things, they go sellers stick around for a month. Like our sellers are around for two years, right?
We need that kind of support to make sure things go off flawlessly, right? And that’s why whenever you see it, you know, we’re not inventing the wheel, right? Whenever big companies acquire other companies, those sellers have to stay on for three years typically, right?
To get all of their money. So we, you know, we look for those kinds of things. And, you know, I would say it’s having a good thesis, right?
We really look at infrastructure, right? We look at, you know, basically manufacturing and having a clear thesis helps you understand not the superficial space, but really how do you dig in deeper and deeper and deeper? Because there’s businesses that do all sorts of stuff out there, right?
And so if I tell you manufacturing, you may think, okay, it’s got to have big machinery, blah, blah, blah. But like, well, no, there’s companies that service the equipment. There’s companies that provide the lubrication for the companies that service.
You know, there’s, it’s a deep stack. And so if you get a clear thesis, it allows you to dig deeper and deeper to go find real opportunities that may make sense.
Bronson Hill: You know, I think there’s so much we could talk about this. And I think if anybody’s interested in learning more, obviously you have your conference that’s called the M&A Launchpad event, which is coming up here. I don’t know, I think hopefully we’ll get this out before it’s in early May.
What’s the date of that?
Feras Moussa: First weekend, first Saturday of May. So I think May 2nd or May 3rd?
Bronson Hill: May 2nd, May 3rd.
Feras Moussa: That should be a good time. And for us, it’s a place to kind of really get a lot of people that are interested in the space help create awareness. And for us, it’s how we find operating partners, right?
The people that we put into the business because some people, everybody’s infatuated with buying a business. It’s sexy to buy a business. It really sucks to buy business too, though, right?
And some people realize that it sucks. Yeah, right. I mean, no, really, like people get in with the idea.
But once they peel back the onion, they realize, you know what? I’m, you know, I’m too late in my career. I’m a little bit too risk averse.
I don’t have as much capital as all of the reasons that people realize maybe they don’t want to buy a business on their own. Instead, maybe they want to, you know, be part of buying a business, right? Which is where we come in and really find guys that we like, know and trust.
Guys that have expertise in certain areas and we can put them in to go be CEO of those businesses, run those businesses and participate in that upside alongside us. So that’s where we find operating partners. We find investors and I learn a ton from our own event.
Just again, this space is kind of the Wild West. And what I mean by that is, you know, it’s not one way to do it, right? Multifamily.
It’s really, there’s only one way to do it. You can level up to a certain point. You have DSC or you have LTV and like you have a senior and maybe you have preff and that’s it, right?
Like I could teach you everything about multifamily in 10 minutes, right? In terms of structures, whereas on the M&A side, it’s completely, you can get creative. I mean, I could say, you know what, I’m going to buy your business, but I’m going to pay you only on the second Tuesday of every month, but on odd months, I’m going to pay you, you know, skip it three years and blah, blah, blah, blah, because here’s how I could find engineer is something that makes sense.
Bronson Hill: Yeah, it is really amazing how creative you can be. And that’s, but you know, I love it too. I think as I’ve learned more about M&A and just about private equity is that, you know, if you’re in syndication or you’re an investor, there’s a lot of advantage to it, especially these days from a cashflow perspective.
It’s really attractive. And if you buy a business that’s literally cash flowing, I mean, some of these small businesses, it’s literally three to five times profit. Like it’s, you said one times profit.
You had an example is one times profit, which is crazy. So we give it more time. We’ll have you back.
You can share that story. But Faris, just want to say I really acknowledge you, man, you’re just a leader in the space, both in the multifamily space. You do great multifamily conferences.
You do a few of those a year. I’ve spoken at those a couple times and you also have your M&A event, which I’d love to make at some point. How can people connect with you?
And again, we didn’t even talk about multifamily today, but how can people connect with you? Talk about multifamily next time. Yeah, yeah.
How can people connect with your brother?
Feras Moussa: Yeah, send me an email at Faris at disruptequity.com. It’s F-E-R-A-S at disruptequity.com. You can find me on everything, Instagram, Facebook, whatever.
I’m very, you know, very approachable, happy to talk, give ideas, share tips, and go from there or come out to our conferences, maybe the best way.
Bronson Hill: fLove it. Love it. We’ll sit tight just a second.
Nate and I are going to kind of wrap the episode here, but Nate just really enjoyed this this episode, man. I love talking about buying businesses. It’s something that it feels very aspirational.
Again, we got pretty far down the row. We thought we were really close to closing and then it ended up working. So obviously a bit of a setback there, but what’s your thought on this topic?
Nate Hambrick: Yeah, I think, you know, you hear this all the time, but it’s always great to get a reminder. Don’t buy a business that becomes your new job. Like as many times, write it on the wall, write it on your mirror.
Like legitimately, and this goes for buying businesses, real estate, etc. Because we all know people, myself included, that get into real estate or buying businesses and then they’ve bought themselves a job that they hate and it’s even tougher to, it’s tougher to quit their business than it is to quit an employer. And so that was helpful here and then.
And also it’s just really cool to hear the development of Disrupt Equity since I have invested with them several times in the past. It’s cool to hear that they’ve got new investment opportunities. I love that.
Bronson Hill: And I think too, my take away as an investor, you know, you are a free agent, maybe you’ve done a certain type of real estate. You’ve been a flipper or you’ve been invested in certain things or multifamily, whatever. You can basically find whatever works for you and your situation.
And that’s why we offer all different types of investments from oil and gas to debt funds, to, you know, private equity, things like this. And we’ve had some VC things just because people have different needs and the market is continually changing. It’s almost like the game of finance is like a board game.
And every day you get up and you go look at your table and it’s sitting there, the pieces are in a different place. So there’s times if you’re paying attention, there are opportunities that really make a lot of sense. And I think with the boomers aging and something like 80% of these businesses will most likely just get shut down, right?
These kind of small, midsize businesses. There could be some great opportunities in your hometown, in your home area, just by asking around and talking to people and hey, I’m buying businesses. I actually made a hat that says some of your business and I wear it to business conferences because I never know where that leads going to come from.
And Ferris is shaking is that yeah, that happens. You know, we never know where that leads going to come from. So anyway, thank you so much for taking the time to listen or to watch this interview.
I think it was really great. We’d love to connect with you individually. If you haven’t joined our investment club, you can go to bronstonequity.com or click the link below and we’ll set up a call with you and hear about some really unique projects we’re doing in oil and gas and real estate and development, other types of projects that cashflow and some unique stuff. So thanks everybody for taking the time to be a part of Mailbox Money Show and we look forward to seeing you on the next episode.
Outro: You’ve been listening to the Mailbox Money podcast.
For more free resources articles and videos go to bronsonequity.com. There you can download your copy of The Special Report on the Single Best Investment Strategy During and After a Pandemic. None of the information shared here is an offer to buy a specific investment, and this is for educational purposes only.
Consult your financial legal and tax professionals and use your own common sense before making any investment decisions.
Thanks for joining us and be sure to tune in next time for more Mailbox Money!
